A note on the relationship between market efficiency and adaptability - New evidence from artificial stock markets

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@Article{Manahov:2014:ESA,
  author =       "Viktor Manahov and Robert Hudson",
  title =        "A note on the relationship between market efficiency
                 and adaptability - New evidence from artificial stock
                 markets",
  journal =      "Expert Systems with Applications",
  volume =       "41",
  number =       "16",
  pages =        "7436--7454",
  year =         "2014",
  ISSN =         "0957-4174",
  DOI =          "doi:10.1016/j.eswa.2014.06.004",
  URL =          "http://www.sciencedirect.com/science/article/pii/S0957417414003406",
  abstract =     "We developed various artificial stock markets
                 populated with different numbers of traders using a
                 special adaptive form of the Strongly Typed Genetic
                 Programming (STGP)-based learning algorithm. We then
                 applied the STGP technique to historical data from
                 three indices - the FTSE 100, S&P 500, and Russell
                 3000 - to investigate the formation of stock market
                 dynamics and market efficiency. We used several
                 econometric techniques to investigate the emergent
                 properties of the stock markets. We have found that the
                 introduction of increased heterogeneity and greater
                 genetic diversity leads to higher market efficiency in
                 terms of the Efficient Market Hypothesis (EMH),
                 demonstrating that market efficiency does not
                 necessarily correlate with rationality assumptions. We
                 have also found that stock market dynamics and
                 nonlinearity are better explained by the evolutionary
                 process associated with the Adaptive Market Hypothesis
                 (AMH), because different trader populations behave as
                 an efficient adaptive system evolving over time. Hence,
                 market efficiency exists simultaneously with the need
                 for adaptive flexibility. Our empirical results,
                 generated by a reduced number of boundedly rational
                 traders in six of the stock markets, for each of the
                 three financial instruments do not support the
                 allocational efficiency of markets, indicating the
                 possible need for governmental or regulatory
                 intervention in stock markets in some circumstances.",
  keywords =     "genetic algorithms, genetic programming, Efficient
                 Market Hypothesis, Adaptive Market Hypothesis,
                 Agent-based modelling, Artificial stock markets",
}

Genetic Programming entries for Viktor Manahov Robert Hudson

Citations